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According to the SeekingAlpha site, Google is testing a CPA (cost per action) network – the kind of approach Bill Gross is trying at Snap, and many others, like Valueclick, have employed, with limited success so far. Why? Is Google hedging against click fraud and spam? Is this just spaghetti against the wall? I am asking now….so far, this is still officially unconfirmed.

The detail they have over at SeekingAlpha – from a note to one of the members inviting him into the test – is interesting in itself. Google is clearly changing the rules with CPA. For instance:

How can I promote the CPA ad unit?

Since this is a test and these CPA ads are not regular ad units, we are giving you more flexibility in saying things like “I recommend this product” or “Try JetBlue today” next to the CPA ad unit. However, you should still not incite someone to click on the ad, so saying “Click Here” is not ok.

What can I do to optimize my revenue from the CPA ads?

While we encourage you to experiment as much as possible with these ads on your site, here are some general tips on implementing a CPA ad:

1) Ads that blend in with the site and are placed prominently tend to perform better. Look to integrate the ad within the page.

Hmmmm….

The poster, David Jackson, immediately shorted Valueclick. However, the stock is up this morning, so far.

Update from Google spokesman, who confirmed CPA tests: We’re always looking for new ways to provide effective and useful features to advertisers, publishers, and users. As part of these efforts we are currently testing a cost per action pricing model to give advertisers more flexibility and provide publishers another way to earn revenue through AdSense. We’re pleased with how the test is progressing and will continue to gather feedback from advertisers and publishers.

1) CPA-based costing for ads is fundamentally a better model than CPC or CPM — no up-front costs for merchants, you only pay when a sale closes.

2) yes, it pretty much eliminates the click fraud problem (altho there will be other methods of fraud, but tougher to scam if Google is also taking the payment)

3) if Google doesn’t get on this fast, you bet your ass the Yahoo & eBay will be launching it soon as well — in fact, i’d say this was A MONUMENTALLY HUGE ERROR on the part of both Yahoo and eBay for not having launched CPA-based ads a year ago… by controlling transaction point-of-sale, Yahoo & eBay (& also Amazon) have had a TREMENDOUS advantage over Google, however if they wait much longer Google will start catching up (with Gbuy).

4) using CPA-based costing, Google could theoretically get FATTER margins than they get from CPC, since merchants will be willing to give up a bigger % of their margin in exchange for guaranteed sales.

5) CPA-based costing is simpler for merchants, and doesn’t require any complex conversion calculations or analytics. it’s just a cut of the sale, and it’s easier for them to figure out if they’re making money or not with CPA than CPC or CPM.

in summary, i’d be incredibly surprised if this doesn’t result in a sea-change for the business of internet advertising, if not the market for advertising overall.

FINALLY we will have accurate, measurable, ROI-based advertising spending that results in DIRECT sales.

who wouldn’t want to move to this model?

and a corollary question: why they hell has it taken Yahoo & eBay (& Amazon) so long to realize this is their one last remaining advantage against Google, & to get rolling on it before Google catches up?

lastly: expect Microsoft to make an acquisition or partnership with one of Amazon, eBay, or Yahoo in order to get into the CPA-based game.

What strange timing. In three days, ValueClick’s affiliate network, Commission Junction, is slated to change their service to a more CPC-type javascript linking system. As ValueClick tries to compete with Google, Google tries to compete with ValueClick?

(google for more info: commission junction LMI)

Once ValueClick/CJ makes their change to javascript service, they will have the traffic analytics of 68% of the internet (source: Revenews, Beth Kirsch).

IMO, CPA may be less profitable for publishers in the short run, but
it may also be more profitable in the long run because it is less
susceptible to fraud. You will have much less of the mania that
sweeps through publishers fearing that their AdSense accounts will be
terminated because of fraud, so much so that they’re afraid to tell
their family and friends they have a site that makes money from ads.
Rather, it will be like most ad-sponsored businesses, where you can
actually encourage people to buy something through your channel, and
if they do, the advertiser, publisher, and ad network all win. You
won’t have the problem of the publishers who generates clicks on their
own sites which are difficult if not impossible to track, draining the
budgets of advertisers. In fact, it isn’t much of an issue for
publishers to buy products advertised on their own sites, as long as
it’s inexpensive to get one’s own web site, and the means of
determining where the lead originated is robust.

I think it would be wise for Yahoo, eBay, and the rest to offer CPA,
especially if the action is a sale.

Basically, to cut a long story short – I don’t believe that Google is equipped to deal with running a CPA Network right now – although they may well skill up quickly.

It’s erroneous to believe that fraud will be elimated – where there is commerce, there is fraud! CPA Networks need to be very aware of who the publishers are, as credit card fraud is rife amongst CPA networks, where publishers click their own links, purchase using phony credit cards, and the merchants get double whammied.

Interesting move, and quite predictable, but is it sustainable across and advertising network in the short term – maybe, but only with the right systems in place.

I don’t believe CPA will eliminate all fraud. It will eliminate a lot
of the type of fraud that is committed with CPC or CPM, especially if
the action is a sale. CPC and CPM are trivial to defraud in
comparison to sale-based CPA.

Google is a smart ass then they have negotitated this way. They would get paid for click no matter sales occurs or not. (This contract will cease to exist at the end of Q3. They have secuerd their revenues till then) If sale does occur they get a higher percentage.

Google is the search leader so it can dictate some terms but with the entry of Yahoo & eBay, advertisers will demand some terms. Adding to Google’s woes is the troubled American economy which may force advertisers to cut on their spending. Yes all this means lesser revenues to Google in Q3 and Q4. Google will miss its estimates later this year

While CPA works in theory for all parties, in practice it hurts publishers. Publishers are forced to take on an inordinate amount of risk – if a merchant writes a bad ad, has a poorly designed landing page, has technical difficulties on the site, has slow servers, etc. – it may negatively impact the ability to convert. Why should this be the publisher’s problem? Bottom line is that a publisher with good inventory shouldn’t be responsible for the conversion once they deliver a legitimate lead to the merchant’s page. If the real issue is abuse, then networks need to do a better job of policing their publishers.

on the contrary, comparing CPC to CPA should allow publishers to evaluate how well various merchant websites convert to sales, and enable high-volume publisher sites to send their traffic to the best-performing merchant.

unless *ALL* merchants in a category have crappy CPA conversion, there’s no reason the publisher will be punished — however, they might have to do a little testing to see who’ll give them the best deal for their traffic.

of course they could decide to stick with CPC-based incentives, however i’d bet that in most cases CPA incentives should provide substantially higher payback than CPC.

it is possible that CPC might pay better than CPA in the short-run; however as happened 5 years ago, once advertisers became more knowledgeable about the true performance of CPM-based ads those costs came down. i would expect similar scenarios to occur with advertisers getting better info on CPC performance once they start using CPA, and thus better (possibly lower) pricing for CPC to settle in over time.

in that sense i guess it “hurts” publishers, but actually i’d suggest it’s more the case that publishers may today be overpaid for non-performing CPC traffic. however, better advertising metrics transparency should improve the overall industry & thereby grow the market.

This is no different from their CPC pricing. All the advertisers are already backing their CPC spends into an eCPA and managing as such. This will be just one more way for VCLK or any other affiliate business to further mine the search engines with their publishers’ base. It’s actually a really good thing for the overall sector.

Ad networks are still a very necessary link in the ad monetization chain. Google is a frictionless business and affiliate marketing is all about the “service”, whether it is the optimization, creative development or overall relationship, Google has no desire to become a service-oriented company. It’s all about the technology for them.

Every time Google or Yahoo releases a new metric or tool, it just makes it easier for the ad networks that utilize their search impressions to gain access to even more inventory that much faster and that much cheaper.

Google entering the space is indeed the best form for flattery. It’s about time advertisers learn that the most logical metric for buying ads online is CPA. This move should only aid every affiliate network working on a CPA basis with the search engines.

As a manufacturer with a retail website pay-per-performance is the only thing I care about. The other options like pay-per-click are merely potentials for a sale. I would rather pay a pay per sale. I think if there was a different stragtegy in play, like building awareness or even selling cp-impression ads like marketbankler then it *could* make sense. But I want to sell some product so this is *THE ONLY* thing that makes sense to me.

as a former cj and current performics customer i guarantee you this is not the end of fraud. i’m guessing that cj’s stock is up because google will bring alot of attention to a marketing opportunity that is very underutilized by the public at large.
There will always be publishers and merchants that want to work with someone other than Google. this is a win-win, if google does better with this than it did froogle. remember when that was going to kill catalog city (shop.com)?

This may alleviate the threat of fraudulent clicks in the adsense network, but it opens the door to a different type of fraud – form submissions. For simple acquisitions like newsletter sign-ups, sales leads or contact form submissions, it will become the norm to request the user to read the letters off scrambled images before submitting. This may weigh in overall CPA. My feeling is that Google’s CPA service will perform just as good as CPC but not much better…hope im wrong.

As a publisher I’m going to be very careful about who I chose to partner with in a CPA relationship. That virtually locks advertisers OUT of my site. If I’ve got a relationship with Widget Maker “A” and you would like me to pimp your widget – why would I risk my relationship with your product?

CPC allows a diverse range of advertisers the opportunity to reach the eyeballs that read my sites. Is there click fraud – I’m sure there is. How big is the problem? I can’t say – but someone is selling a train load of products over the internet – fraud and all. So, let’s not throw the baby out with the bath water.

I think there’s room for both models. If you don’t believe me – let’s just all switch to CPA – align ourselves with the few partners that will make us all successful and the guys that get locked out – or start having to pay crazy incentives to get an established publisher to consider their products can just see what kind of vig the ‘Sopranos’ are going to charge to be on the site.